ETF Specialist

A More Complete Bond Index Fund

Phillip Yoo, CAIA

The Bloomberg Barclays US Aggregate Index, which encompasses the broad U.S. investment-grade market, is the most popular benchmark for the U.S. investment-grade market. However, its heavy emphasis on low-yielding Treasury and agency bonds makes it more conservative than most of its active peers and easy to beat. The Bloomberg Barclays US Universal Bond Index, which  iShares Core Total USD Bond Market ETF (IUSB) tracks, attempts to address the concerns by including non-investment-grade corporate bonds and emerging-markets debt, boosting its yield while improving diversification. Yet, the fund still maintains considerable exposure to government-backed bonds, which account for about half of the portfolio, balancing out the increased credit risk.

IShares Core Total USD Bond Market ETF provides market-cap-weighted exposure to the broad U.S.-dollar-denominated bond market, spanning the entire credit spectrum. The fund efficiently tracks the Bloomberg Barclays US Universal Index, and it is currently the only fund replicating the index. Also, its fee is one of the lowest in the intermediate-term bond Morningstar Category. But its cap-weighting approach leads to a Treasury-heavy portfolio that does not resemble holdings of its actively managed peers. It earns a Morningstar Analyst Rating of Silver.

Phillip Yoo, CAIA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.